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The legal world is an ever-evolving industry meaning laws keep on updating as per times, events, behaviours and society. Inspite of evolving, we should remember that “Old is Gold” that is morals set by the Experts and highly intelligent legal fraternities centuries back are still applicable on Today’s date. It is indeed a contribution of our legal experienced ancestors that the Laws have been well established and settled all over the world. I would like to mention the names of few very famous ancestors of the world Joe Jamail (Attorney in US), Abraham Lincoln (16TH President of US and a Great Lawyer), Clarence Darrow (one of the best trial lawyers), Jack Straw (Secretary of Justice), Martin De Pateshull (Justice of the bench and one of the intuitive Judges). I would assert herein that Doctrine is not a law but a landmark belief for justice. We can see there are some Doctrines such as of Basic Structure, of Harmonious Construction, of Eclipse of Pith and Substance, of Incidental powers, of Colourable legislation, of severability, of Territorial Nexus, of Laches, of Eclipse, Pacta Sunt Sarvanda, of obligation of state, burden of proof is on plaintiff and last but not the least lifting of Corporate Veil.
The origin of Doctrine of lifting of the Corporate Veil is from the case of Salomon Versus A Salomon and Company Limited [1897] AC 22 (House of Lords) wherein the Company was registered with seven Shareholders including the family of Mr.Salomon. There were suspicious related party transaction which led to the company’s winding up. The company was barely able to redeem the debenture and the creditors were left unpaid. Mr.Salomon herein claimed the defence under the name of company being a sperate legal entity and that the insiders shall not be held responsible for the accusations. A company is artificial person even if it is a separate legal entity. A company cannot be accused of committing a fraud as the it cannot be tried in court of law like natural person. It is natural person who is capable and should be held entitled for financial frauds or any frauds in which the natural person, which in this case are the shareholders i.e Mr.Salomon and family.
I will be moving ahead in discussing how lifting of corporate veil has proved to be one of the most important Doctrines in Today’s times.
- It is interesting to note that a statutory recognition has been given to a Doctrine of lifting of corporate veil under S.12, 34, 35, 76 A, 219, 339 of the Indian Companies Act, 2013.
- In Prest v Petrodel Resources Ltd [2013] UKSC 34, [2013] 2 AC 415 the Court of Supreme Authority of United Kingdom acknowledged the presence of the Doctrine of lifting of corporate veil in English Law and it was held that the Company’s Separate legal entity existence cannot be held as loophole to evade the Laws.
- In the case of United States v. Milwaukee Refrigerator Transit Company (1905) 142 F, edn. 247, The US Supreme Court held that the reason of “Corporate Separate Entity” cannot be used as defence to commit frauds and defeat public interest, on wrong doings the Company shall only be treated as an association of persons and each and every individual responsible for crime shall be punished.
- Universal Pollution Control India (P.) Ltd. v. Regional Provident Fund Commissioner [2007] 137 Comp. Cas. 319 (Bom.) In this the court held that the Corporate veil Doctrine shall not be applicable as the PF Act does not make an provision regarding the same that if PF.
- In the case of Richter Holding Ltd. v. The Assistant Director of Income Tax [ 2011]199 TAXMAN 70(Kar.) there was a share purchase transaction between UK based, Mauritian based and Indian Company. The Indian Tax Authorities sent a show cause notice. The court seemed to readily accept the enforceability of Doctrine of Corporate veil to be applied.
Thus, the lifting of corporate veil is still one of the efficient tools of fraud detection and conviction because of which the Directors and Shareholders over the world have to be in good watch for and avoid any lapses in mandatory compliances with Government authority. The Doctrine formulated in 18th Century still has a great applicability in bringing the perfect justice to the increasing corporate frauds by protecting the Shareholders and Public in general.
The Doctrine of Lifting of Corporate veil has played a very significant role in exposing various frauds as well as acting as a restraint from committing frauds in name of power, reputation and dominance. The Business is good but taking advantage in name of business and using short coming of laws to make personal gains is not part of business but malpractices. A transparency in corporate system is good for economy of any country and world as a whole.
The laws may evolve from day to day but some old principles and doctrines will always control the vertebra of legal systems in world and continue to provide the justice at its best. This is perfect weapon to maintain the Discipline in Corporates operation and smooth functioning of business.
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